BPO - European vendors need to rethink their strategy

One of the key findings from a recent research in Europe on IT services vendors is that Offshore BPO services provision is rapidly overtaking IT transformation as the main value driver in BPO deals, and this is going to have a significant effect on the vendor going forward. IT services vendors increasingly see offshore as enabling quicker, lower-risk cost reduction than IT transformation. And more European clients in both the private and public sectors are following this trend.

The volume of offshore resources, and experience in managing them, is important today, but it will be a key factor in the European BPO market tomorrow. It has been noted that in terms of BPO, the industry has split into three groups. First come the established Indian companies who have the strongest expertise and most scaleable offshore BPO resources. The second is the US-based IT services giants including IBM, Accenture, EDS and HP. These companies have all invested heavily in the past five years to ramp up their Indian resources- they also have the benefit of already employing significant numbers of service staff in other onshore, nearshore and offshore locations globally. This enables them to be more flexible and scaleable in offshore proposition.

Lagging behind both these groups are the European IT services. Most European IT vendors can only show off a few thousand staff in India, with many BPO vendors such as Capita, Xchanging, or Arinso having head count of their offshore employees in the hundreds. Now how they manage to scale-up these resources, and gain from its expertise effectively will be something to be seen in the next 10 years.

Building an offshore proposition will not be easy job for the European IT services. With added competition for resources in India, and the infancy state of other potential offshore locations, it will take many more years before an European offshore operation starts running successfully. The quickest route for European vendors will be from Mergers and acquisitions. The industry has already seen Capgemini acquire Kanbay, and Wipro acquiring several small European firms in support of its BPO strategy. Such Mergers and acquisitions will undoubtedly increase over the next few years, and European vendors must grab the opportunity either by buying offshore, or selling-up to an offshore-based player. If not, they could be out of the BPO race much before the dust settles

BPO industry may face dearth of Chartered Accountants

India is set to face a shortage of practising chartered accountants as most of them find working in more glamourous industry. The growth of business process outsourcing (BPO) firms in accounting, finance and investment domains will only make the shortage more acute.

The growth of business process outsourcing in accounting and finance is growing at large pace, and the demand to pull in more CAs will make worse worse and will further result in the shortage of chartered accountants.

The finance and accounting outsourcing was expected to touch $24.6 billion globally by 2010. In 2006, 30 per cent of all FAO work outsourced came to India, creating a demand for chartered accountants.

This issue was further enlightned In the recently one-day seminar on BPO organised by Southern India Regional Council of The Institute of Chartered Accountants of India in Chennai on Saturday. Addressing the concern the Director HR of Infosys Technologies Mr.TV Mohandas Pai said "There are more opportunities in India than there are qualified people. The demand for CAs is particularly high.

According to one estimate, India would need 50,000 Chartered Accountants by the end of the year 2010. Till 2005, about 5000-6000 CAs were graduating every year. Though this number has gone up by 9000-10000 in the last couple of years.

Statistics laid by a member of ICAI reads there were 135,000 CAs registered with the institute, in which about 55,000 of them are practising in India, 12,000 outside India and the balance rest employed elsewhere within the country.

Based on the above figures Mr.Pai say that this numbers is not enough and has to go up in order to meet the potential demand," he further adds that BPO sector as a whole is set to employ 5.45 lakh people to generate revenues of $8.3 billion in 2007. This is against 4.15 lakh people in 2006, generating $ 6.3 billion of revenues, and 3.16 lakh people in 2005 generating 4.6 billion of revenues.

Scotland attracts Indian outsourcers

Scotland aims to get Indian outsourcers to set up call centers and business process outsourcing BPO centers in the country, by offering staff with multilingual capabilities. A number of Indian outsourcers are setting up centers in Europe to offer near-shore services to European customers in their local languages. Indias second largest outsourcer, Infosys Technologies, for example, has a service delivery center in Brno in the Czech Republic.

Rather than set up a number of small centers in various European countries to support different European languages, Indian outsourcing companies can set up a single center in Scotland, where staff can offer services in up to 25 languages, said Shivendra Singh, country manager for India of Scottish Development International, a Scottish government-funded agency set up to attract investment to Scotland.

Scotlands key advantage is that there are a large number of foreign students who come to study in universities in Scotland, and stay on to work there, said Ronnie Melrose, head of IBMs hardware services delivery in Europe. This gives us an opportunity to hire people for their language skills, he said.

The government in Scotland has also helped as it gives foreign students graduating from universities in Scotland an automatic work permit, Melrose said.

IBM, which started manufacturing equipment in Scotland in the 1950s, has been running call center and BPO operations in the country since 1995, both to support its own operations and those of its customers that have outsourcing contracts with the company.

IBMs five centers in Scotland, with a staff of about 1,100, offer services in 23 languages, including French, Italian, German, Spanish, Dutch, Turkish, Hebrew, and the Nordic languages.

One benefit for us is that there is as yet very little competitive attrition in Scotland, Melrose said. There is however attrition of a different kind: Students that stay in Scotland for their first job often move back to their home countries after about two years, Melrose said.

Scotland currently has over 70,000 call center and BPO staff in Scotland out of a population of 5 million, said Phil Taylor, professor of work and empowerment studies in the Department of Human Resource Management at the University of Strathclyde in Glasgow. About 10 percent of these staff speak at least one more language besides English, he said. Foreign students coming to Scotland, as well as migrants, have helped position Scotland as a location for multilingual services, he added.

Scotland also has a large pool of staff specialized in the financial services area, because of the large number of banks and other financial services organizations in Scotland, Taylor said. A large number of banks in London have also set up call center and BPO operations in Scotland, to take advantage of this expertise, and also because costs there are lower than in London, Taylor added.

Four Indian outsourcers have so far shown interest in setting up centers in Scotland, Singh said. Some Indian outsourcers have already set up or acquired delivery centers elsewhere in the U.K., typically as part of outsourcing contracts with clients in the U.K.

HCL Technologies, of Noida near Delhi, acquired the Apollo Contact Center in Belfast, which was operated by BT Group, to offer contact center services from the center to BT and other clients.

An overview of Chinese BPO

China has the potential to develop a large IT BPO Business Process Outsourcing industry, said a report released by Indian famous IT chamber of commerce NASSCOM here on Tuesday. With substantial domestic market potential, a sizable educated workforce and strong government emphasis on developing the sector, China will become a major player in IT BPO industry, said the report.

The NASSCOM report Tracing Chinas IT Software Services Industry Evolution, a white paper series of which this is the first, shows that the body considered China as an alternate market, competitive destination and potential partners for India.

Speaking at a press conference, NASSCOM President Kiran Karnik said, China has come a long way in establishing itself as a destination for IT sourcing, with all stakeholders including government, academia and industry working towards improving the regulatory environment, offering incentives to IT companies and increasing the talent pool.

IT software and services is a fledging sector of the Chinese economy, estimated at 12.2 billion U.S. dollars in terms of revenue in 2006. And the domestic market accounts for over 86 percent of the total IT software and service revenues, said the report.

However, the total value of IT software and services exported from China was estimated at 1.8 billion U.S. dollars in 2006, a growth of 41 percent over the previous year. And Japan and South Korea are the largest export markets for Chinese IT software and services, the report added.

Presently the Chinese IT market is hugely skewed towards IT hardware which is 90 percent of the total market size. The IT software and services sector accounts for just about 0.5 percent of Chinas gross domestic product in 2006, said NASSCOM Vice President Ameet Nivsarkar.

Pakistan IT Exports Revenue crosses USD 116 Million

Pakistan IT industrys export revenue as reported by State Bank of Pakistan SBP has hit US US dollar 116 million mark in the financial year 2006..07, crossing the target of US US dollar 108 million set for the year. This indicates a quantum increase of 61.18 percent in IT exports when compared to the previous years export revenue figure of US US dollar 72 million

SBP, in its statement for the year 2006..07, has estimated the countrys IT services export revenue at US US dollar 116 million, which indicates a consistent annual growth, a spokesman of Pakistan Software Export Board PSEB said. BPO and call centers have made a significant contribution in the increased exports due to adequate telecom facilities and trained manpower available in the country. Considering that the 15 percent GST imposed on computer hardware in the federal budget 2006..07 has not yet been removed, this rise in IT exports is remarkable.

The current IT exports annual growth rate is still understated as only 5 percent of the countrys registered companies file their exports data with SBP. PSEB is making vigorous efforts to ensure that the export figures of all IT companies are reported to SBP.

The State Bank of Pakistan utilized the BPM 5 Reporting System to report the IT exports revenue, which also restricted the export revenue figure to US US dollar 116 million in 2006..07. The Reserve Bank of India, on the other hand, follows the BPM 6 Reporting System, which raises its exports to billions of US dollars. BPM6 includes sales to multinationals, earnings of overseas officials & salaries of non..immigrant overseas workers to export revenue. Utilizing the BPM 6 Reporting System, Pakistan IT Industrys exports are estimated at US US dollar 1.4 billion while the total industry size is estimated at US US dollar 2.8 billion.

With over 1042 IT companies registered with PSEB, the countrys IT exports grew by an average of 50 percent in each of the last four years. PSEB has been facilitating the countrys IT industry through its programs in Human Capital, Office Space, Marketing, Company Capability Development, Telecom Bandwidth, Industry Finance, Public Policy, Strategy and Research, and Facilitation. The Government of Pakistan has also introduced a package of incentives for the IT sector including tax exemptions until 2016, 100 percent foreign equity and earnings repatriation and low..rent facilities for IT companies.